Professional Documents
Culture Documents
EEB 3
Constituents of Financial
System
Government bond
market
Gov’t T Bills
Money market
Instruments
• Equities Most popular investing
instruments
Stocks and shares
Bonus issues
Rights issues
• Debt
Corporate
Government
7
Financial Market r t ing
p p o
Su nts
age
Capital Insurance
Primary
Money market market cos
Mkt Inst
NIS
Commercial Primary
banks Credit
market Second
unions
Stock ary
Firms raise exch market
Short term capital ange
Investors
instruments debt trade
equity securities
issued in
Public primary
Private market
placement
Money Market Instruments
Short-term debt is traded in the money markets.
Short-term is any debt instrument sold with a life that is
365 days or shorter.
Typically, money market securities have the following
features:
– No stated rate of interest – instead, sold at a price that is at a
discount from the par or face value of the security.
Examples include:
– Treasury bills
– Commercial Paper
9
Short-Term Debt and the Money
Market
Commercial Paper
Short-term debt instruments, usually unsecured, issued by
corporations.
Involve credit risk because the financial health of a corporation can
deteriorate and jeopardize the repayment of the amount borrowed.
– Sold at a discount from their face value
– Maturities less than a year
Because of the credit risk, usually there is only a market for
commercial paper offered by the most credit worthy corporate
issuers.
11
Market infrastructure
• Stock exchange
• Clearing and settlement
• Education and training
• Investors’ protection
• Rating agency
Intermediaries
• Brokerage houses
• Rating Agencies
• Stock brokers
• Advisors
• Merchant Bankers
Role and Functions of
a stock exchange
Established for the purpose of
assisting, regulating and
controlling business of buying,
selling and dealing in securities
Role and Functions of
a stock exchange cont’d
• Provides a market for the trading of
securities to individuals and
organizations seeking to invest their
saving or excess funds through the
purchase of securities
Role and Functions of
a stock exchange cont’d
Provides a
physical/electronic location
for buying and selling
securities that have been
listed for trading on that
exchange
Role and Functions of
a stock exchange cont’d
Establishes rules for fair
trading practices and
regulates the trading
activities of its members
according to those rules
Role and Functions of
a stock exchange cont’d
Disclosure
Ownership of the
Owners company is by the
public in the form of
shares one share,
one vote
Board is elected by
shareholders to
Board of represent the best
Directors interests of the owners